Twitter at the crossroads — growing up is hard to do

It used to be so easy being Twitter. No one expected much from the company when it was a plucky young startup in a brand new market; even when its servers repeatedly failed and the network went down, users would grumble and then come flocking back in even greater numbers. As it grew larger and became more of a business, adding commercial features and swapping its CEO for one with more corporate experience, fans still mostly cheered its expanding influence and its power as a tool for free speech and real-time information. Twitter was the newswire of the future, a shining example of the democratization of publishing in action and the rise of the social web.

Over the past few months, however, it has become increasingly obvious that the honeymoon is over. What began as a murmuring of dissent from developers over Twitter’s control of its API and treatment of its ecosystem has turned into open revolt, and even some former fans have begun to question whether the company is paying more attention to its advertisers than it is to the users who provided the foundation for its success. Driven by the need to generate revenue for the financial backers who have given it an $8-billion market value, Twitter is in the process of becoming a major digital media entity. But can it make that transformation and still retain the qualities that made it a consumer darling in the first place?

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Becoming a media entity is a double-edged sword

Turning into an ad-driven media company might be a smart business decision — at least in the short term — but the billion-dollar question is whether these changes will eventually kill the goose that laid the golden egg. Will an increase in advertising, or evidence of special treatment for corporate partners — of the kind it displayed for NBC during the Olympics — or the slow death by strangulation of favorite Twitter clients turn enough users off to make an impact? Or does Twitter have enough network effects, because of its massive user base, to fend off challengers such as App.net and keep the market to itself?

In the early days, even Twitter didn’t know what it was supposed to be — or what it was in the process of becoming. It seemed like such a trivial thing, with its 140 characters and its goofy name, that hardly anyone paid it any notice, except to scoff at the idea that it could be good for anything but wasting time (of course, plenty of people thought the same thing about the telephone). And so co-founder and CEO Evan Williams and his partner Biz Stone did whatever they thought made sense, including releasing an open API that developers could use to build cool features on top of the growing network.

Virtually all of the things that we think of now as core functions of Twitter, from the use of a hashtag for topics to the use of the @ mention and even the idea of a retweet, were invented and popularized by users and the apps that were built on top of Twitter’s API. That’s probably why the first backlash against Twitter came when the company started moving in on its developer ecosystem — or bulldozing it, depending on your viewpoint — by adding features that others had built businesses out of (including shortened links) and buying up players like Tweetie to create “official” Twitter apps for various platforms.

Twitter wants to control all aspects of the network

That was the beginning of the transformation that we’ve seen accelerate in recent months: no longer just a “hippie-style open network” with the laudable goal of improving the world’s access to information and lowering the barriers to free speech, Twitter rapidly became a company. It swapped Evan Williams (who just launched a new content platform called Medium) for a high-powered CEO in former Feedburner CEO Dick Costolo, raised hundreds of millions in venture financing that gave the company a theoretical market value in the billions, and started limiting the things that developers could do with its API.

For the most part, this kind of behavior only caused tension and dissent in the developer and geek communities. One of the company’s early development heads, Alex Payne, quit after sending out an open letter saying that Twitter needed to “become more open or die,” but for users there was nothing but upside — the network was growing rapidly, and early adopters no longer had to launch into a long explanation about what Twitter was. Oprah was using it and so were tons of other celebrities, and during the Arab Spring uprisings in Egypt and Tunisia the network became an almost unparalleled source for news thanks to NPR’s Andy Carvin.

And as it started to became more mainstream, Twitter launched the revenue model everyone had been expecting (and in many cases dreading): namely, advertising. At first, it was just “promoted tweets” and “promoted trends,” which only appeared in certain spots — then advertisements started showing up in people’s Twitter streams, but only if they had already expressed some interest in the topic. At the same time, Twitter started to form corporate partnerships with media companies for special events such as the Academy Awards, where tweets from the audience were displayed on TV networks as a kind of “second screen” feature.

Twitter CEO Dick Costolo

Although CEO Dick Costolo denied a number of times that Twitter had any intention of becoming a media company, it soon became obvious that this was exactly what the former startup had in mind — not a traditional media outlet, perhaps, but a content-distribution network powered by advertising revenue. Instead of trying to fulfill its early goals of becoming an open platform or real-time information utility, Twitter started to focus more and more on its advertising partnerships and its media partnerships, driven in part by the desire to justify its estimated $8-billion market valuation.

The pressure is on Twitter to monetize

Utilities don’t make much money but media companies can, especially if the cost of creating the content they distribute is virtually zero — and especially if they control the content. And that seems to be the impetus for most of the changes that Twitter has made to restrict its API: a desire to control more of the content so that it can monetize its growing audience via advertising (my colleague Eliza Kern will cover the API restrictions and their effects in more detail in an upcoming post).

Driven by that impulse, Twitter also started creating curated media “hubs” in partnership with a number of players, including a NASCAR-themed hub, followed by the biggest effort of all this month: an official Olympic hub with a curated stream of content in partnership with NBC. That partnership (which also forced Twitter to geo-block anyone outside the U.S. from reaching its official hub, since NBC only had the U.S. rights) created a significant controversy when the company suspended the account of a British journalist who criticized NBC, something the network’s legal counsel later apologized for.

For some critics, the suspension was a test of trust for Twitter and its new corporate relationships, and the company mostly failed. More than anything, the incident highlighted the difficult of walking the kind of tightrope Twitter is trying to walk with its new evolution as a global media entity: it still wants to be the champion of free speech, but governments and corporate partners are likely to bring increasing pressure to block or delete certain kinds of content. It wants to be seen as a partner for media companies, but its ambitions make it look an awful lot like a competitor as well. And it wants to monetize the features that users and developers created, but in order to do so it has to control as much of the network as possible.

Add to all of those challenges the difficulties caused by Facebook’s high-profile IPO disappointment — which some say has effectively closed the window for social-web IPOs — and the increasing pressure on Twitter to generate large enough sums of revenue to justify its market value, and you have some pretty substantial growing pains. Will Twitter be able to survive and become the media entity it clearly wants to be? Or will users grow restless with its newfound ambitions and take their content elsewhere?

Great article.
Twitter’s future and my career both suffer same kind of problem – “Monetization”.
Same as my career moves, moves by twitter doesn’t make any sense in present. The only way out to guess strategy adopted by twitter is to “split the strands and check how they converge in future”. The moves made by twitter remind me of movie “chaos”.

I should also remember my management lesson: “profit is a dirty word, but it is oxygen of businesses”.

The last time I actually used Twitter was when there was bullets flying in Bangkok. Outside of a crises how many people use it for serious content? What Twitter was Facebook now is and Google+ wants to be.

In a crises now I would more likely go to Google+ not Twitter. Pretty much for me Twitter is about like MySpace, yesterdays news. Anyone that did not see that coming with the adds, well it was not much of a surprise here.